This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: are. The Big Mac theory (a.k.a. purchasing-power parity, or PPP) says that exchange rates should even out the prices of Big Macs sold across the world. The implied PPP shown in the table is the exchange rate that would make a Big Mac cost the same abroad as it does in the USA. When you compare actual exchange rates with the implied PPP rate, you will see that most currencies are trading way above or below the US dollar, meaning that they are over- or undervalued. Keep in mind that PPP is a long-term indicator, pointing to where currencies ought to go in the future. (It's also best to use it only to measure currencies between countries that are at a similar stage of development.)...
View Full Document
- Spring '11